Cloud 9 to lose over $605,000 following LCS violation

Riot Games' LCS ruleset amendment of 2017 stated players may not be given team stock, lest the rules be broken. Cloud 9 failed to comply with the rules and notify Riot Games, which resulted in fines and restitution amounting to over $605,000.

Back in 2017, Riot Games instituted a rule that prevented owners, general managers, head coaches and players of any team from owning a stake in said organisation. While the cited reasons are usually professionalisation and franchising of League of Legends esports, the main reason for the rule's existence is potential match-fixing.

For example, if a player gains organisation equity and then transfers to another team, they would be financially incentivised to throw a match. A player's own wealth would grow with more success of the organisation they co-own.

In the matter of Cloud 9, it appears that seven players in total received equity grants
, between 2017 and 2019, sometimes without even having a legal representative while making the deal. Based on Riot's investigations, some of these players are no longer with the team, which creates an obvious conflict of interest mentioned in the preceding paragraph.

Furthermore, Cloud 9 failed to provide proper documentation to Riot Games in time. Cloud 9 ownership claimed they didn't know equity grants were against the rules as they weren't aware of the rule change when franchising kicked in and the upper management didn't review summary sheets.

As a result, Riot Games decided to fine Cloud 9 for $25,000 per each agreement, resulting in $175,000 total fine. These funds will go to charity, as per LCS agreements.

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In addition, Riot mandates Cloud 9 compensates former players in an aggregate cash amount, at prevailing fair market value. Meanwhile, the organisation will have to cancel any agreements that involve equity with the current roster and renegotiate the contracts to compensate the players. In total, Cloud 9 will have to pay out approximately $605,000 but Riot Games estimate the amount expended by Cloud 9 will exceed that number.

The rules will slightly shift in 2020 and will allow for players who were three or more years
on the roster to partake in contracts that grant them a stake in the organisation. This makes Cloud 9's timing awfully unfortunate, while TSM's new deal with Bjergsen will not break any rules, despite the player becoming a co-owner of the organisation.